Magazine

Egypt: What Progress?

December 22, 2002

In a cavernous, smoky shop off a busy square in Fayoum, an hour's drive west of Cairo, Mohammed Khalil shapes metal strips on a charcoal-fired forge. He uses them to fasten together black-painted, horse-drawn buggies for Egypt's tourist trade. Not long ago, the 64-year-old Khalil says, he was able to produce one of these hantours, as they are called in Arabic, every three months. "I had to go all over for tools and parts," he says. Now, thanks to $5,000 in loans from a U.S.-sponsored program run by aid agency Care, this traditional craftsman has enough materials on hand to turn out two vehicles per month and to pull in a respectable $10,000 in annual revenues.

Loans to small businesses in Fayoum are just a tiny slice of the massive economic assistance program that the U.S. runs in Egypt. The U.S. Agency for International Development (USAID), which operates out of a fortresslike headquarters in a Cairo suburb, has spent over $25 billion in the country since 1975. Since then, the U.S. has pumped an average of $815 million annually into the country with the aim of "enhancing stability, democracy, and prosperity for Egypt and the Middle East," a USAID document explains. USAID has been a player in everything from monster infrastructure projects in clean water and power to sensitive areas such as family planning. The agency even underwrote training for the staff of the country's Parliament. In addition to these initiatives, the U.S. has provided Egypt with some $1.3 billion in military assistance each year since 1979.

Certainly, the aid has contributed to some big successes. The money flows have reinforced the direction Egyptian policy has taken since the mid-1970s--most importantly, peace with Israel and a more pro-Western slant. But Washington's other foreign policy goals, including pushing the country toward representative government and a market economy, have met stubborn resistance.

That's why anyone who believes it will be easy to replace Saddam's regime with a democratically elected government and a free-market economy should consider three decades of U.S. experience in Egypt. Here, intensive engagement has only nudged Egypt slightly along the political and economic spectrum. What was long an authoritarian regime with a state-controlled economy has become a system that tolerates only limited opposition. And the state remains a major player in key industries such as banking, telecommunications, and energy.

Egypt may actually have regressed over the past few years. In the mid-1990s, Egypt was a hot emerging market in the region. President Hosni Mubarak's government signed off on the revival of the stock exchange in the early 1990s. And large private businesses, which were virtually prohibited under President Gamal Abdel Nasser, who ruled from 1952 until his death in 1970, made a comeback. Hope of more reforms started to stir. But the government's commitment to economic liberalization faded as the aging Mubarak, who is now 74, worried about his weakening power base. Challenged by Islamic militants, he clung to an overvalued currency and resisted privatization measures that would jeopardize employment. Since then, the Egyptian private sector has been mired in what seems a never-ending recession. The stock market, which peaked in February, 1997, has plunged by close to 70%.

Mubarak has also opted for the status quo in politics. While the influence of Parliament has grown, the President and his ministers still hold most of the real power in the country. Some analysts believe Mubarak has used the threat of terrorism as an excuse for tightening the screws on groups promoting human rights and democracy. One prominent case was that of Egyptian-American sociologist Saad Eddin Ibrahim, who was given a stiff seven-year jail sentence for accepting European Union funds to monitor elections without government permission. Ibrahim recently received a reprieve when an Egyptian court released him and ordered a retrial--after a strong protest from the Bush Administration.

Despite that assist from Washington policymakers, many observers think the U.S. has done too little, especially in the economic arena. "The U.S. could have done more to encourage liberal, forward-looking policies," says Aladdin Saba, chairman of Beltone Investments, an asset management firm in Cairo. One problem is that most U.S. aid goes to the Egyptian state rather than to the private sector--strengthening the regime and giving it less incentive to change.

Strangely, Egypt's best hope for a way out of the current mess looks to be the President's son Gamal Mubarak. The younger Mubarak, 39, a former executive with Bank of America, recently has taken over his father's previously sclerotic National Democratic Party and is giving it a thorough housecleaning. He has recruited 120 leading lights from business and academia to "a higher policy committee" of the party and held a brainstorming session to come up with ideas for tackling the country's ills. Among the priorities: empowering women, improving education, lowering taxes, and eliminating bureaucratic obstacles to exports.

Mubarak's father denies that his son is being groomed to succeed him. But the prospect bothers many Egyptians who like to think their country is more sophisticated than the thuggish regime in Syria, which replaced Hafez Al Assad with his son Bashar in 2000. Maybe the pro-Western Gamal Mubarak would be better than another general. But it's a sad comment on Egypt--and U.S. efforts to democratize it--that power still seems such a family affair. By Stanley Reed in Fayoum, with Susan Postlewaite in Cairo